House Flipping v Land Flipping (CFFL 315)
Jack Butala: House Flipping v Land Flipping. Every Single month we give away a property for free. It’s super simple to qualify. Two simple steps. Leave us your feedback for this podcast on iTunes and number two, get the free ebook at landacademy.com, you don’t even have to read it. Thanks for listening.
Jack: Jack Butala with Jill DeWit.
Jill: Hi.
Jack: Welcome to our show, today. In this episode, Jill and I talk about house [inaudible 00:00:06], house flipping versus land flipping and some of the differences and pros and cons. Here’s a hint: they’re both good. Before we get to it, let’s take a question, posted by one of our members on Land Academy’s free online community.
Jill: Cool. How do I get to that free online community?
Jack: LandAcademy.com.
Jill: Okay, Chris asked, “What is the significance of capping the assessed value so low?” Chris is obviously in our world, so he knows to ask this question. “Is it not worth it to mail to the higher assessed properties?”
Jack: One of the shows we did this week was called Mailer Yield. I think it was yesterday. What mailers yield better results?
Jill: Right.
Jack: Maybe it was Wednesday.
Jill: Mm-hmm (affirmative).
Jack: Happy Friday, by the way.
Jill: Thank you. Happy Friday.
Jack: The significance … What we teach for beginning people is to take the bottom 20% of the assessed value this. Imagine this. Imagine a county, maybe the county that you live in. Now take all the property in that county, every single property, take out all the commercial real estate. Take out all the houses. Take out all the government owned land. Picture it in your head. Now you’re left with vacant property, vacant, unimproved property. Now take all the properties out that aren’t five acres, or let’s just say we’re going to send a mailer in that county of all the vacant property that’s between five and eight acres.
Jill: Okay.
Jack: All right. Now, take the bottom … They have an assessed value between a million dollars and ten dollars. You want the bottom 20% only, because you want to send letters out that are undervalue, really under value, like 40% of what they’re worth, maybe less, so the strike percentage on that lower value property’s going to be better. Does that make sense?
Jill: Yeah.
Jack: This is imperative. If you do not do this, the first time out, and you don’t hit your numbers, like we talk about. For every hundred vacant properties that you send out, your going to buy one. For every 2,000 offers you send on houses, you’re going to buy one. You will not achieve those percentages if you don’t do it in the bottom 20% of assessed value.
Jill: Right. Well, like Jack said, you gave a range. You know, am I going to send an offer to someone with a property with a half a million assessed value? No, and offering a couple thousand? That’s not realistic. You’re being realistic, too.
Jack: Five acres in the middle of a city, that’s completely unimproved is assessed way differently than five acres in a very rural area.
Jill: Exactly.
Jack: You want the five acres in the rural area in the beginning. The second part of his question is, “Is it not worth is to mail higher assessed value properties?” Heck, yes. Go ahead anddo that. Your strike percentage is going to be less. I’ve even done this on accident before …
Jill: It’s true.
Jack: … and we bought property.
Jill: Yeah, I mean it’s true. I have bought property for … Gosh, the guy paid twenty-something thousand for it, tried to sell it for forty-something thousand for it. I bought it for $1,900. I mean, come on.
Jack: That’s right. I bought huge acreage properties in really urban areas at our prices.
Jill: Accidentally.
Jack: When you’re a little bit more established in your career, and your real comfortable with the mechanics of buying property and the whole thing, absolutely, start going over to some of the … Go after some of those kahunas.
Jill: Well, and also too, it depends on what your criteria is, because we have members that are going for those higher dollar properties. They’re buying infill lots that are selling for $100,000.
Jack: Right.
Jill: They’re trying to buy them for $30, $40,000 or whatever.
Jack: Right. That’s right.
Jill: They’re going for those.
Jack: Price it accordingly.
Jill: Yeah.
Jack: I’ll tell you this, in the interest of full and complete disclosure, when you go after these higher value properties, and you send low offers like we do, you’re going to get some kick back. You’re going to get more kick back than you do with the lower value properties.
Jill: It’s true.
Jack: People are going to call you and say, “I’m calling the police,” or something, something crazy like that. Just be prepared for that, and be prepared that the percentages are lower, but the properties that you do buy, you’re going to kill it.
Jill: Yeah. Exactly. We’re trying to set you up. We’re trying to set you up to make this easy … The is actually a perfect segue into what this topic is about, today too, Jack. We’re setting you up where you are going to have a good experience. You’re going to make some money. You can easily double your money, and get your feet wet, figure this out, and then go on. Where, for example, if you’re trying to flip a house right out of the gate, that’s much, much harder and not as fun to do.
Jack: We have, and what you want to have is a positive experience your first time out, okay? We have more members that come to us and say, “I had a real estate experience ten years ago. I bought a house. I cleaned it up, and I lost my ass.”
Jill: Exactly. I was just going to say the same thing.
Jack: You want to have a positive experience. You don’t want to get turned off just because you have one bad deal.
Jill: Yup.
Jack: If it’s your first deal, unfortunately, you don’t want to be turned off by the whole real estate investment scenario. Look, you already know people who are making a ton of money on this. I’ll tell you, they’re not on HGTV. That’s a lot of fiction, people.
Jill: Right.
Jack: In fact, that’s what the topic’s about: flipping houses or flipping land. If you have questions or you want to be on the show, reach out to either one of us on Land Academy’s free online community. Jill.
Jill: That’s perfect. I think this transition … It’s funny how when we put the shows together … Really not me, but our team. I say we, meaning my world, puts our shows together …
Jack: We meaning not me.
Jill: Yeah, we meaning not me … put our shows together, our staff actually picks out, they really do go into our online community, so just so you know, put something in there. We might pick yours. It’s not just our members. It’s anyone in our free online community. Our staff goes through and picks out questions for Jack and I to cover on these shows.
Jack: Yeah.
Jill: They’re not … The show is not planned around any question. They’re totally separate events, so it’s fun when they tie together, like this one really kind of ties together. What you just said, we’re talking about house flipping versus land flipping. I wrote down three negatives, and I wrote down three positives to share.
Jack: Good. Excellent.
Jill: My first negative is what you just brought up, Jack, which is we had a member that they say, “I never lost $20,000 on a land deal.” We’re like, “Duh.” There you go. Can you do that on a house flip? Absolutely. We heard a story here in LA area, a friend of ours … We’re talking a guy losing $500,000 …
Jack: A half a million dollars is what he lost.
Jill: … on …
Jack: On a house because he got in too deep.
Jill: Yeah. Too deep, bought it wrong, did it wrong, and it was a half million dollar mistake. Now what’s interesting, the guy could recover because he does other multimillion dollar deals, but do you really want to walk around losing a half million dollars at all? No.
Jack: In the beginning of this, we’re going to talk about some terrible stuff, and at the end, I’m going to tell you exactly how to knock it out of the park, flipping houses and flipping land …
Jill: Okay.
Jack: … because I’ve done it all wrong.
Jill: Yeah. Do you want to hear some of my other ones?
Jack: Yeah, absolutely.
Jill: That was one thing in negative. The thing, too, houses versus land, so many more things to go wrong on a house deal. We’ve done this, by the way. You can open up a wall and go, “Oh, no. This isn’t going to work,” or you have a beautiful renovation in mind, and you know it’s going to open up for the view and you realize, “Shoot, that’s a …” What’s it called when it’s holding a part of the house? It’s walls you can’t move, sometimes. You know that to make a beautiful …
Jack: Load bearing wall.
Jill: That’s it.
Jack: Things happen that you just can’t get around, you didn’t plan for. Then my third negative thing is … It all kind of ties in, but like that half million dollar guy, I mean it didn’t sink his ship, but for somebody else, one deal can sink the ship.
Jill: Right. A lot of people … That’s what Jack and I were talking about, too … A lot of people will come to us going, “I thought all real estate was bad. I tried it and I couldn’t do it. I lost my ass,” like you said. I don’t know if I can say …
Jack: Oh my god, I’ve never heard you say a bad word like that, like never.
Jill: Can we say on this show? Sorry.
Jack: Probably not.
Jill: All right. Anyway …
Jack: It’s a nice turn at the ball, though.
Jill: You did. I kind of copied. One deal can sink the ship and give you a really awful experience when you’re doing a house. That’s my negative list. You have any more? Do you want me to go over the positives? I have more, but …
Jack: Well, go ahead.
Jill: No, I mean, in the world of negatives, about flipping houses there are more. I’m not going to go for an hour.
Jack: Here’s the thing with houses: every deal’s different. Here’s the thing with land: every deal’s the same.
Jill: Yeah.
Jack: You want to machine it. You want a very boring transaction.
Jill: Yeah.
Jack: You want to be bored out of your mind, and printing money. You don’t want any drama. The less conversations, the better, the less work, better, just efficiency and calm. That’s why land flipping’s not a TV show, because it’s boring.
Jill: Because you don’t have to stand there and babysit it like you have to do land, or a house, I mean.
Jack: Yeah, because there’s no tragedy.
Jill: I mean, you have to stand there and just like … I mean literally, because we’ve done this. I pack a lunch, and I’m at the job site all day long.
Jack: Yeah, [inaudible 00:09:47] and I, during the downturn, we renovated a few houses, and what a mess.
Jill: You know what? I looked at it like a hobby, and I had fun with it, but I just sat there, and I added up the money gone. “This is ridiculous. I should not be sitting here,” but somebody has to. I was kind of lead designing stuff back then. It was really … I mean I enjoyed it, but it was not the best use of my time, that’s for sure.
Jack: Right.
Jill: Want to hear my positives?
Jack: Yeah, keep going.
Jill: Here’s my positives of the houses versus land. Land is, I never have to see it. I don’t have to babysit it. Now we’re at that level. When you’re starting out … Jack’s right … you want to get out there. You want to know what you’re buying, but the level we’re out, we don’t look at them.
Jack: In the interest of full disclosure and the legal situation, there’s very different laws that apply to real estate acquisition and sales with people who have seen the property, so it was designed … There was a lot of negative things that happened in the 40s and 50s with land specifically being subdivided and sold six different times, one piece of property, so a lot of laws were formed about “If you see it, your rescission time …” If you go visit the property, your rescission time is a lot less than if you don’t see it, so please be careful with that. We choose not to do that. We’re extremely experienced. If you’re new at this, please consider going to see the property.
Jill: Right. Exactly. Another positive: in our world, land versus houses, lower cost of entry. That’s a huge one. What I can buy for $3,000 in land is phenomenal. $3,000 will get me nothing …
Jack: Yeah, the money’s so different.
Jill: … outside of Detroit.
Jack: Yeah, you don’t want that.
Jill: Do you know what I mean?
Jack: That’s a topic for a different show.
Jill: I know it is, but seriously, I mean just getting into the business, you’ve got to have … There’s bank involved. I mean, a lot of the decisions you don’t get to make because you have banks involved and investors involved. Dream it up. A positive for us is a lower cost of entry. Then my third biggie for me is, like you said earlier, Jack, no work. I don’t have to do anything to it. I’m not even mowing it. I’m not staking it. I’m not mowing it. I’m not having the power company come out and show her where the power ends and how far away it is, or whatever it is. It’s so much easier.
Jack: If you take a piece of property, and imagine the most tragic thing that can happen to it, like it gets burned down or whatever. It’s actually more valuable.
Jill: It just cleared off all the brush. Awesome.
Jack: With a house, it would, like Jill said, sink the ship.
Jill: Yeah.
Jack: You don’t have to worry about it. There’s no insurance. Here’s exactly … Did you get through all your list?
Jill: Mm-hmm (affirmative). Thank you.
Jack: Here’s what I see many brand new real estate investors do, and this is exactly what not to do with a house. You approve it as the MLS. You look for a for sale property. Never do that. Never even access the MLS. Forget it. Even if you’re buying a primary residence, your house …
Jill: What’s the MLS? Just kidding.
Jack: Multiple listing service.
Jill: I know that. I’m joking. I’m being facetious.
Jack: Somebody got there first. The real estate agent beat you to it. Don’t look at those properties. I know it’s tempting. I’ve actually purchased propertietos out of the MLS and made a ton of money, but don’t … It’s the wrong way. You peruse the properties. You find a house that you think is going to make some sense. You go to a bank, and you say, “I want to buy the house,” and they say, “Great. Just put 3% down. You have awesome credit,” and whatever. You put 3 to 5% down, and now you’re going to pay interest on a tremendous amount of money. You’re heading down the path of failure. You want to remove all the expense out of this. Who makes money on these deals? Well, the listing agent does, the buying agent does, the mortgage guy that got you this fantastic loan at 3% makes a bunch of money.
Jill: The bank.
Jack: The bank makes money. The person who did the inspection makes money. That’s his full-time job, and on …
Jill: The contractors.
Jack: You know who doesn’t make money? You. Yeah, the contractor makes 3 to 8, 10% renovating the thing. Then on the sell side, the listing agent makes money, and the buying agent makes money.
Jill: That was all your money.
Jack: The chances of you making money on this deal, unless you’re like a pro … Don’t get me done. There’s people who do this, and they do it well, especially in California, here. Don’t get me wrong. You can do it very efficiently. For the rest of us, most of us, and I put myself in this group, it’s just above my head.
Jill: It’s a lot of work and not fun to do.
Jack: It’s a lot of work. Every deal’s different. Then you go to the next house, and every … It’s no wonder people, like in bigger pockets … I see all the time, this is absolutely … People teach this.
Jill: Right.
Jack: People charge a lot of money in hotel conference areas, $50,000 sometimes, to teach this dumb way to do this. Here’s a Land deal. You send out a bunch of offers. You get access to the assessor’s database. You incredibly intelligently choose the properties that make a lot of sense, that might be sold. You send offers out. You get the owners seeking you out now, all right? The mail does the work for you. You send out offers at 20 to 40% of what you think you can sell the property for, what it’s worth.
Jill: Mm-hmm (affirmative).
Jack: The people who are interested in doing that, they just want to get rid of it. Like an old car in the garage, they don’t care about the price. They will find you.
Jill: Exactly.
Jack: You’re going to send them a check. Now there’s no real estate agents involved. There’s no appraiser involved. There’s no loan. You take all the expense out of it, and then you sell it yourself on the internet. That is how you make a ton of money. After awhile, you never have to go see it, again, it’s just another 40 acres. It’s just another vacation lot in Northern Michigan. In fact, you know what, I’ve done this so many times now, I know exactly who’s going to buy this. I don’t even have to do any work. That’s how you do this.
Jill: You can have similar numbers, too, by the way, because you and I know those people. We’ve done that. I can have a deal. I can have a renovation. I can flip a house and make 40,000. I can flip a piece of land and make 40,000.
Jack: Yup.
Jill: Gee, what would I pick?
Jack: It’s no work.
Jill: Gee, let me think about this one, again. Oh, and I did it in 45 days …
Jack: 30 days.
Jill: … maybe 30 days, maybe even less.
Jack: Our cash in, cash out … I looked at it after that show … is about 30 days.
Jill: Right.
Jack: Here’s how to do a house deal.
Jill: Uh-oh (negative).
Jack: I described how not to do a house deal. This is how you do a house deal. In fact, Jill and I don’t talk about it a lot, but …
Jill: That’s true.
Jack: … we do house deals just like I’m about to describe, all the time. We will release a whole program on it in the first quarter, 2017. You find a buyer first. You find a guy that is a professional house flipper. You sit down with him, and you say, “What area do you love to work in in the city?” He will say, “I love zip code X. If I could get …” This is the sentence you’re looking for. “If I had 20 houses in zip code X for 120 grand, I could kill it. I would make a million bucks this year.”
Guess what you do then? You get up from wherever you met the guy, and you run to your computer, and you data mine through wherever you’re accessing the assessor database, and you send out a bunch of offers to houses, to house owners. Make sure they have no mortgage on them at all, because they’re not making the decision. The people who have no mortgages are making the decision. People who have mortgages, the bank’s making the decision. You don’t want to have any part of that. You’re wasting your time.
Send them offers for 40% of what you think the ARB is, which is the renovated sale price. Every 2,000 that you send out, one person is going to sign it and send it back, and you’re going to close the deal. You’re going to mark it up $10,000, not a penny more. I see a lot of people mark it up 80,000 and they wonder, “What the heck?” You’re going to disclose to your buyer that you’re marking it up $10,000. You’re going to make a big paraded deal about it. I only want ten grand out of this deal. In fact, I’m not going to even go see a buyer.
Jill: I hope you make 80.
Jack: I got a letter back. The guy wants to sell it. Here’s the address. Please go over there, house renovator and see if it’s going to work for you. Let me know. I’m not going over there. Then you put the deal together. You don’t even put the money. We don’t even buy it. Now you’ve got the most excited buyer on the planet, because you did all the work. They can’t figure this out themselves. They’re good at renovating houses. They have a whole truck full of tools and stuff. They’re not data people. We’re data people. We don’t have a truck full of tools. We have a database. You do it over and over and over again. You can do it in any city.
Jill: Mm-hmm (affirmative).
Jack: As long as you have that buyer that knows that area and is a professional house renovator, and that’s how you make a ton of money.
Jill: Perfect. I couldn’t have said it any better.
Jack: Throw you’re tools away.
Jill: Yeah, dot com.
Jack: You know, I see men …
Jill: DontchangeaLexusheadlight.com.
Jack: Of all the stupid stuff that men do, I see a man get really hung up in, “That cabinet’s not put in right. I’m ripping this whole thing out. The guy before me was an idiot.” They beat their chest, and they get their tools out, and they make a perfect cabinet. Nobody cares.
Jill: Nobody cares.
Jack: Your wife doesn’t care. I’ll tell you that right now. She does not appreciate that kind of crap. She wants a massage. Throw your tools away.
Jill: She doesn’t want you in her kitchen for two weeks, too, like analyzing this whole thing, and spending all this time. Meanwhile, she can’t use here kitchen.
Jack: She wants a big kiss and a massage. She doesn’t care about her cabinets that much.
Jill: I love it.
Jack: Join us in another episode where Jack and Jill discuss, how to use information: that’s me …
Jill: … and inspiration: that’s me …
Jack: … to get just about anything you want.
Jill: We use it everyday to keep each other out of each other’s areas, and buy property for half of what it’s worth and sell it immediately.
Jack: If you’re doing this wrong, you are alone in your real estate ambition.
Jill: Happy Friday.
Jack: I think that was pretty clear.
Jill: That was good, yeah. That was really good.
Jack: Do I sound too preachy?
Jill: No, no. No.
Jack: All right.
Jill: You’re never … Seriously, trust me. You’re never preachy.
Jack: All right. That’s good to know.
Jill: no.
Jack: I get animated about this because it’s just so easy. I hate to see people pay for education, like way too much for education to learn how to do crap the wrong way.
Jill: Yeah. I know. It is very interesting. I think sometimes I look at it like a fad, too. I’m like, are we really trying to make money, or are we just trying to … I don’t know.
Jack: Mm-hmm (affirmative).
Jill: You know what it is? It’s like I think of the news. You know, on the news we’re led in certain directions on certain stories. I think, sometimes, we’re led down these paths and it’s not necessarily the right path, but you think it is, keeping up with the Joneses. “Well, my neighbors are flipping houses. We should flip a house.” Oh, no, no. You don’t need to do that.
Jack: Yeah, and these shows aren’t helping anything, the way that they’re done. They could. They should do like a real flip. Disclose all the numbers. Disclose the time frame, because you’re watching a half hour show.
Jill: That’s true.
Jack: It’s like, “Oh, they renovated the house in 22 minutes.”
Jill: “Oh, I can do that.”
Jack: “Yeah, I can do that. Oh, that’s easy.”
Jill: Yeah, they didn’t show the husband losing sleep. They don’t show the husband’s sleepless nights. They don’t show that, and they don’t show the wife crying because they just cleaned out their savings …
Jack: That’s right.
Jill: … and now he’s hitting up her mom for money.
Jack: That’s right.
Jill: That happens because they’ve got to recover. They don’t show that.
Jack: Yeah, they don’t show the divorce proceedings.
Jill: Oh yeah, the divorce papers. That’s true. The therapist sessions.
Jack: The kids crying.
Jill: Keying the other person’s car.
Jack: All the soccer games they missed for the kids.
Jill: That’s right. It’s so great.
Jack: You know what? That would be a show. I would watch that show.
Jill: That’s what I want to watch.
Jack: That’s reality TV. That’s reality.
Jill: We’re going to do that show.
Jack: Information and inspiration to buy undervalued property.
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